Rev.1: 8. I am Alpha and Omega, the beginning and the ending, saith the Lord, which is, and which was, and which is to come, the Almighty.---Jesus is the Alpha and Omega- the Almighty!
Daniel 11:33. And they that understand among the people shall instruct many: yet they shall fall by the sword, and by flame, by captivity, and by spoil, many days.

Thursday, October 18, 2012

Tax Demagogues Are Lying Liars, in One Graph

The rich pay
lower tax rates than we do. Bush's tax cuts were only for the rich.
Both the Reagan and Bush tax cuts were sops to the rich. Schmucks
like you and me pay all the taxes so the rich can ride free.

You hear
these lies every day.

In case you
think I make these lies up, here are some examples.

"Changes
in tax rates have strongly favored the very, very rich." -Paul Krugman

"Like
Ronald Reagan, President Bush began his term in office with big tax cuts for
the rich[.]" -Paul Krugman

"We
know, for instance, that taxes on the rich have fallen dramatically in recent
decades." -Ezra Klein

"The
rich pay a huge share of the total taxes in the United States because they have
a huge share of the money." -Matthew Yglesias

"If you
make money with money, as some of my super-rich friends do, your percentage may
be a bit lower than mine. But if you earn money from a job, your percentage
will surely exceed mine -- most likely by a lot[.] Back in the 1980s and
1990s, tax rates for the rich were far higher[.]" -Warren Buffett

"Based
on an exhaustive analysis of tax records and census data, the study reinforced
the sense that while Mr. Bush's tax cuts reduced rates for people at every
income level, they offered the biggest benefits by far to people at the very
top[.]" -Edmund Andrews, The New York Times

"And
that's why this plan eliminates tax loopholes that primarily go to the
wealthiest taxpayers and biggest corporations -- tax breaks that small
businesses and middle-class families don't get. And if tax reform doesn't
get done, this plan asks the wealthiest Americans to go back to paying the same
rates that they paid during the 1990s, before the Bush tax cuts." -President Obama

The taxes
included in this chart are for all federal taxes, not just income taxes.
Each quintile is one fifth of taxpayers, based on income. The top
quintile is the one with the highest incomes.

From just
this one graph, several observations can be drawn.

The most obvious observation is
that the higher your income, the greater your federal tax rate is.
Taxpayers in the top quintile paid about 25% of their income in federal
taxes, while those in the bottom quintile paid about 5% in 2007.

The rate for the top quintile
has been very steady for the last thirty years: about 25%. In fact, the
rate since the Bush cuts went into full effect (2003-07) was about the
same as twenty years before (1983-87).

The same cannot be said for the
lower quintiles; they have trended downward, especially since the Bush
cuts in 2003. For the lowest quintile in particular, the rate has drifted
downward since 1984, from about 10% of income to about 4%. That is a cut
in the tax rate of about 60% for the lowest quintile, versus no cut
in rate for the top quintile.

Changes in these rates
cannot be explained by changes in income. The rate is taxes paid
divided by income. If your taxes went up only because your income went up,
then your rate would not change.

Reagan's tax cuts became fully
effective in 1983. But look at the trend in average tax rate for the
highest quintile of earners after that. It went up. That upward
trend on the richest Americans went up for seventeen years after
Reagan's tax cuts.

The same cannot be said for the
lower quintiles. Tax rates for the lower 80% of taxpayers remained
virtually flat, or trended downward, from 1983 to 2000.

A cut on the capital gains tax
rate became effective in 1997. Do you see any kind of accompanying dip in
the average tax rate for the highest quintile in that year or shortly
after? Nope. The rate is pretty flat from 1993 to 2000.

The Bush tax cuts did cut tax
rates -- for all income groups. The cut was about 2%-3% of income
for all quintiles. But since the lower income groups were paying lower
rates in the first place, the constant cut across income groups meant that
tax rates were cut proportionally more for lower income groups. For
example: the top quintile was cut from about 27% to about 24%, which is a
cut in the rate of 11%. But the bottom quintile was cut from about 7% to
about 4%, a cut in the rate of over 40%.

Some lying
liars have tried to obfuscate things, sometimes by including multiple taxes
(e.g., personal income and payroll) and at other times by complaining that not
all taxes are included. The above graph from the CBO includes all
federal taxes. However, if you were to look at personal income taxes
only, the observations above would be even more obvious. I recommend
taking a look at a previous American Thinker Graph for the Day. Since about 2002, the
average federal income tax on the bottom 40% of "taxpayers" has been negative:
they collect more in credits than they pay in taxes.

There is one
minor flaw in the above CBO graph: that top quintile includes a lot of
taxpayers. In fact, in 2009, those making over $75,000 constituted the
top 20.6% of taxpayers, or approximately the top quintile. So that top
quintile includes some of the middle class plus the rich and
"mega-rich" (a Warren Buffett term).

So let's
look at that top quintile, shall we? The table below shows 2009 average
federal income taxes as a percent of income (adjusted gross income less
deficit) for the various income groups. The groups with incomes over
$75,000 constitute the top quintile, approximately. (Data for the year
2009 is the latest available.)

Average
Federal Income Taxes Paid, as Percent of Income

Income

Average
tax rate

Under
$75K

6.6%

$75K
to $100K

8.5

$100K
to $200K

11.9

$200K
to $500K

19.6

$500K
to $1M

24.4

$1M
to $1.5M

25.3

$1.5M
to $2M

25.6

$2M
to $5M

25.8

$5M
to $10M

25.4

$10M
or more

22.6

The obvious
observation from this data is that the rich pay higher taxes than the poor or
middle-class. The rates are strictly progressive up to incomes of $5 M:
each income group, up to $5M, paid a higher percentage of income in taxes than
the next lower group.

It is true
that the very highest income group, those making over $10M per year (the
"mega-rich"), paid a lower rate than those making merely a few
million. But that group still paid a higher percentage than all groups
making less than half a million dollars. The average billionaire would
pay a higher tax rate than his secretary unless he paid his secretary a couple
million dollars per year.

Does it not
strike you as odd that this "anomaly" in progressivity is used to
justify increasing taxes on everyone making more than $200K per year? If
the top 8,274 taxpayers are the ones who bother you, why are you raising taxes
on the top three million taxpayers, a good several hundred thousand of
whom already pay a higher rate than those 8,274?

There is a
simple reason the "mega-rich" pay a slightly lower average rate on
personal income taxes than the merely "rich." That reason is
not some dark secret known only to tax loophole experts. It is that most
of their income is from capital gains, which is taxed at a lower rate than
"normal" income.

And there is
a simple reason for that: capital gains have already been taxed in the form of corporate
income taxes. Warren Buffett likes to include payroll taxes in his little
anecdotal calculations, but he neglects to include corporate income tax, inheritance
taxes, and other forms of taxes that are paid disproportionately by the
mega-rich.

And by the
way, total federal revenue in 2007, well after the Bush tax
rates were in effect, was 18.5% of Gross Domestic Product. The 1960-2000
average was 18.2% of GDP. All that tax rate-cutting, and still the actual
revenues collected were above the historical average.

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